Do “buy-sell” clauses in third party ownership agreements constitute undue influence under FIFA’s Art 18bis?Ariel Reck
The recent situation involving the Doyen Sports investment fund and Sporting Lisbon in relation to Manchester United’s bid for Marcos Rojo provides another opportunity to consider some topical issues related to third party investment.
The analysis is especially relevant because FIFA is currently discussing a new regulatory framework for these investments while UEFA continues with its campaign to ban the practice1. Among the different aspects of the Rojo dispute (in particular the percentage owned by the fund and the relationship with the player) this article will examine the notion of influence and its relation with customary clauses often included in third party ownership (TPO) agreements.
FIFA’s regulation of TPO
Art.18 bis of the FIFA Regulations2 states: “18bis Third-party influence on clubs. 1. No club shall enter into a contract which enables any other party to that contract or any third party to acquire the ability to influence in employment and transfer-related matters its independence, its policies or the performance of its teams. 2. The FIFA Disciplinary Committee may impose disciplinary measures on clubs that do not observe the obligations set out in this article.” This article was introduced into the regulations that came into force on 1 January 2008 as a direct result of the Tevez case3. Since then, clauses obliging a club to release a player in certain circumstances became void, and so disappeared from the typical TPO agreements and were replaced by new clauses that were effectively borrowed from the world of shareholders agreements.
The new breed TPO – “buy-sell” clauses
The "core" of the TPO agreement is currently the "buy-sell" clause in its different forms (first refusal; drag along; shotgun; tag along4), tailored for the football industry. The most common clause states that in case an offer from a new club is received (sometimes any offer; sometimes an offer above a predetermined amount) and the investor wants to accept it, the club shall either accept the offer and transfer the player or buy the investor's share under the same terms of the new club's offer5. The aim of these clauses is to protect the investment without imposing undue influence on the club's transfer policies. Points 9 to 11 of Doyen statement from 13 August 2014 clearly refers to this6.
Are “buy-sell” clauses valid?
Questions remain as to whether these clauses represent undue influence and it is a point that FIFA is yet to clarify. There is also a lack of case law to assist with interpretation (and there is, in any event, little incentive for a club to disclose such a contract). The club will be sanctioned but the agreement will still be enforceable. As these “buy-sell” clauses appear to be widespread, there is an arguable case that the industry regards them as valid. While it is acknowledged that the fund will have some protection for its investment, it is my view that these clauses will be restricted to avoid the risk of undue influence on the club. If they are not, they may well fall into the category of prohibited influence under article 18 bis. TPO is an investment model that carries a number of risks, risks the investor will naturally attempt to manage and mitigate as far as possible. When a club enters into such a contract it effectively agrees in good faith that a future transfer of the player is a common objective of both the club and the investor. It would arguably therefore be unfair to allow the club to simply reject any transfer offer until the expiration of the player’s contract. The “buy-sell” clause in the typical form nevertheless allows the investor to exert excessive pressure on the club when an offer comes in for a player. When a club seeks third party investment it is generally because it is not capable of funding the deal on its own; it wants to share the risks, or it does not have access to more traditional forms of financing. If the club does not have the finances to purchase 100% of the player´s rights in the first place, how will it be capable of acquiring the investor´s share at a later date, at a higher price, to match any new club´s offer? Therefore the typical “buy-sell” provisions effectively force the club to sell, which allows for an undue and excessive influence over its transfer policy. These clauses should be limited and any future regulation should address this specific issue.
How else could TPO be accommodated?
In my view, the following structure is both workable and guards against excessive influence, while at the same time allowing the investor to manage the investment risks. If an offer is received from a new club for a player subject to a TPO arrangement, and the investor accepts it, the club should have the following options:
- accept the offer and transfer the player; or
- reject the offer; and
- Acquire the investor´s share under the same terms; or
- Wait until the end of the employment contract (the contract in force when the TPO agreement was signed, not further extensions). At that point the club will have to pay the investor the amount it would have received from the rejected offer; or
- Accept another offer for the player. If the new offer is financially less beneficial than the offer rejected, the club shall pay the investor the difference to effectively compensate its loss.If the new offer is better, the club shall only pay to the investor the equivalent to the rejected offer and may retain the additional uplift.
Such a structure would, in my opinion, protect the investor while still maintaining the balance, allowing the club autonomy to determine its transfer policies without any undue influence.
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- Tags: FIFA | Financial Fair Play | Football | Spain | Third Party Ownership | UEFA | United Kingdom (UK)
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About the Author
Ariel is a lawyer in Argentina focused exclusively on the sports sector, mainly the football industry. He has particular experience advising on third party player ownership issues, player´s transfers and international sports disputes before FIFA and CAS. He has also spoken at conferences on these issues in Argentina and at international level.